Supposedly we're all fools and the central bankers have us by strings like we're puppets.
Everyone here dumping dollars and hording Gold. Is that the right play for everyone? This says otherwise. This has all happened before and we're suckers about to get scrapped over an open fire.
PLEASE read the following EYE OPENING report and interview and tell me how she/he is WRONG and Austrians are RIGHT?
http://europe.theoildrum.com/node/5917
As far as I see, their whole scenario rests on this assumption: as people default on their loans for certain leveraged projects, this somehow leads to price deflation across the board. However, ask yourself these questions:1) Did the digital money involved in the loaning process vanish with the loan default? I'd say it didn't. Imagine this: profligate person A borrows X from the bank to buy a car. X is now on the car manufacturer's account. A defaults on his loan. This is bad for the bank which is now lacking X, but X didn't evaporate. It's still here, circulating through the economy - unless the car manufacturer is hiding it under his pillow, which leads to our second question:2) As businesses default on their loans and productivity shrinks while at the same time the money that poured into the economy via loans still exists, why should we expect deflation? It's a relatively stable amount of money chasing a shrinking supply of goods and services. Sounds more like price inflation to me.To be fair though, they do have a point. Bank runs, as happened in the wake of the Great Depression, which lead to people actually hiding money under their pillows instead of putting it into another bank account, do tend to lead to price deflation across the board due to a decrease in the supply of "working money". We have a similar situation right now with commercial banks putting enormous amounts of money into the Fed system as excess reserves instead of actually lending them out to borrowers on the market. See this chart for more precise details. Banks get a fraction of a percent interest on these idle deposits. It's by far not enough to cover interest payments for these commercial banks' depositors. At some point, they will be forced to lend this money to cover their bills.
But maybe they loan out just enough to cover their bills, you say, and put the rest under the Fed's pillow. Can't this lead to serious deflationary tendencies? Yes. However, think about it: if there is one thing that the economic world view behind the central bank dreads, it's deflation. In the wake of this crisis, we have heard experts of all stripes warn about the perils of deflation. In post-WW II US history, there has been just one year of average consumer price deflation I think. The post-WW II Fed, Congress and academia have always, by and large, preferred inflation to the prospect of deflation. With nearly a trillion dollars of excess reserves idling around in the Fed's digital chambers, do you think they would hesitate to disincentivize this activity, e.g. by imposing a small fee on excess reserves, to make banks lend again if they think it will drive away the deflation beelzebub?
The problem is not deflation. The problem also is not inflation. The problem is government spending. Government spending and deflation are problematic because wages fall faster than prices. Government spending and inflation are problematic because wages do not rise as fast as prices. So who cares if we are in deflation or inflation? My concern is the government not cutting spending.
At most, 5% of the population would need to stop complying to bring down the government.
Spideynw:The problem is government spending.
Spideynw:My concern is the government not cutting spending.
You're right, but I wouldn't count on the government to cut their spending any time soon. It's been less than a year for spending to get to where it is now (3-4 times where the deficit was when Obama took office). How much more can they spend before the population can replace members of Congress to slow the spending?
Today they are focused more on the perception of the economy than the reality. The recession is over - yippee!!! How much damage is that going to do? Malinvestment on top of more malinvestment.
I think we're at the point that even if the government doesn't spend another dime, there's enough damage to see a correction of massive proportions. Now the right thing to do would be to let that happen so as to minimize the recovery. Such a recovery won't be due to government intervention (which includes government spending).
The market response would be higher interest rates and inflation - even hyper-inflation. A lot of people would be wiped out, but some would be prepared for the inevitable and the recovery would take years rather than the decade or more under government intervention.
I'm afraid we're in for something much worse because the government won't change its behavior. There will be more intervention: more spending, more monetary manipulations, more takeovers, higher taxes (transfers from private to public), etc. As people revolt from this, government will become much more direct in its limitation and control of liberty. Eventually, the government will collapse on itself. It's at this time where things could turn out even worse - the state that replaces the current state. I hope by then people are informed enough to move towards liberty and capitalism rather than away from it. So far, I don't have that much confidence in the people.
While it was interesting reading I am still not sold over to the deflationary front. Ever since this depression started I predicted a period of stagflation, with raising prices, contracting industrial output (except China) and saving rates and raising unemployment. Nominal GDP growth will most likely be fueled by the present stock bubble and increased government spending. What will happen next nobody can tell: we may have deflation, high inflation (but not hyperinflation) or something we never experienced before.
The big problem I see right now is the link between government spending and social issues. Central bankers may be geniuses in their own right but there are simply too many issues even for the world smartest men to handle right now. Even the dumbest politician knows that what should be done right now is roll back government spending consistently to allow for tax cuts which would fuel lasting economic growth and not just another bubble. The problem is spending cannot be rolled back: the economy has come to rely too much on government spending. Ordinary people in the street have come to expect "free" medical care and retirement benefits and won't hear the voice of reason saying them we cannot afford them anymore. Enterprises have come to expect nice fat government contracts, subsidies for everything from not firing people to building whole new factories and a being bailed out (by tariffs, legislation or whatever other mean) no matter how inefficient they have become and won't hear reasons if their bread and butter is rationed. Japan and Europe will probably be the first to take the hit because their social structure is much more rigid than the US and because of internal issues: Japan is beset by its enormous public debt and rapidly aging population while Europe economy has come to depend far too much on government spending and legislation is becoming too costly of a factor to be ignored. The US, despite the colossal debt, still has a chance but will probably throw it away trying to pursue the Soviet model. That's why no matter how intelligent central bankers are they are bound to fail and the Austrians will once again be proven right.
Yes, it's time for the Dr Goebbels show!
"Unlike inflation, which divides the underlying real wealth pie into smaller and smaller pieces, credit expansion creates multiple and mutually exclusive claims to the same pieces of pie."
i have read several times that inflation was an expansion of money and credit...the person writing the oildrum article now wants to call inflation only a money increase and the money unit-denominated credit specificaly 'credit expansion'.
if inflation involves adding money to an economy and (under a frb paradigm) the credit from that money, then inflation is just that money can be inflated and money + credit can be inflated.
i dont know why this idiot wont specify which aspects of the currency (money and/or credit) are the 'problem' instead of going on about some redefining of the inflation term.
probobly a fake article written by a very dishonest person.
I predict both inflation and deflation at unspecified points in the future. I also predict that the Sun will both rise and set at unspecified points in the future. *Waits to be correct*
sthomper:why would nominal prices be of any concern? wouldnt you or any other consumer want to know the price of goods adjusted for inflation?
why would nominal prices be of any concern? wouldnt you or any other consumer want to know the price of goods adjusted for inflation?
No, because it's meaningless. My income suffers from inflation as well, so I, as a consumer, consider the nominal price of goods. Not only that, but inflation doesn't affect everything equally, so it's impossible to truly "adjust for inflation."
sthomper:which 'they' re you referring to when 'they' speak of nominal prices?
which 'they' re you referring to when 'they' speak of nominal prices?
The "they" I was referring to was the "Shell" quoted in your article. The excerpt never directly referred to nominal prices, but that was the implication—that real (i.e., non-inflated) prices fell while nominal prices rose. In the context of the OP (dumping dollars and hoarding gold because of inflation scare), nominal prices are all that matter.
I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.
So generally the replies to this article I posted are against the article. (Against deflation)
I'd like to know more about the reasoning behind "Some Austrian economist believe deflation is coming"
This whole discussion scares me because the purchasing power of any gold I might be holding. Also, my home is not in the USA. I live in Asia. If the US has hyperinflation, then I assume all paper currencies will have some inflation and so gold is good to hold. Let's say the US hits a deflationary depression, then what happens to the Asian currencies and the purchasing power of gold in Asia. I'm nervous.
the reason behind some austrians?? saying that deflation (the price variety??) is coming???
well i posted this info from a another mises thread -- "In an online debate with the Atlantic's economics writer, Megan McArdle, Shell observes with disapproval that, when prices are adjusted for inflation, Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car'than they did during the early 1970s. Over that same period, Census Bureau tables show, US median household income rose by at least 18% in constant dollars . . ." if true???
http://blog.mises.org/archives/010741.asp#c604991
according the the above quote americans now spend-less-for-the-same on many goods than they did in the early 1970's.
i guess you see that as price deflation over a few decades time. is there a greater abundance of other goods experiencing price-inflation that would make this true: (or are there even more goods that americans spend more real-dollars on)
"after 1973, when real wages grew stagnant for two decades...The stock market did not outperform general economic growth. After taxes, it did not match economic growth.. -- http://www.lewrockwell.com/north/north555.html "
20 years of stagnant wages seems to me to be long term price-inflation??
so what exactly are you fearful of?
"The problem is not deflation. The problem also is not inflation."
has inflation ever caused problems?
I just had another explanation from someone advocating deflation. Here's the spiel they give.
1. The central bank and government are two separate entities. 2. The bankers running the FED don't care about the GOV or the People.3. Fiat money is not really completely fiat. It's tied to the labor of the citizens of the country. 4. The bankers will force all the wealth created with it's credit to return to the bankers. This the individual says is what they have done over and over again. 4. Then, after the wealth has been soaked up by the bankers, hyperinflation will set in.People in the USA will see massive deflation and a massive loss of wealth. They are slaves to debt, slaves to the bankers who created that debt. The bankers will buy up all the wealth they want, Companies, land, whatever they want. Then, after the FED owners have received their pounds of flesh for using their money, their credit scheme, then the government will induce hyperinflation of the money.
This is the spiel I'm hearing. Is there any chance it's true.
american.swan: 1. The central bank and government are two separate entities. 2. The bankers running the FED don't care about the GOV or the People.3. Fiat money is not really completely fiat. It's tied to the labor of the citizens of the country. 4. The bankers will force all the wealth created with it's credit to return to the bankers. This the individual says is what they have done over and over again. 4. Then, after the wealth has been soaked up by the bankers, hyperinflation will set in.
1. The central bank and government are two separate entities. 2. The bankers running the FED don't care about the GOV or the People.3. Fiat money is not really completely fiat. It's tied to the labor of the citizens of the country. 4. The bankers will force all the wealth created with it's credit to return to the bankers. This the individual says is what they have done over and over again. 4. Then, after the wealth has been soaked up by the bankers, hyperinflation will set in.
It's true that the central bank is not a government agency. It's also true that paper money is valued by the amount of goods and services purchasable with it. However, this appears to me to be the case with any money - gold money also derives its value from the amount of goods and services one can buy with it, as far as I know.Anyhow. If a bank calls in a loan ("force the wealth created with credit to return to the bank") and the debtor can't pay, they may seize the property purchased with their loan, but the seller of that property still owns the money gained by his trade with the previous debtor, unless the seller has spent it anywhere else - you see where this is heading. The money's still there and the property's still there, nothing's gone missing. Now, if the borrower still owns the money granted to him by that loan, he can just pay it back to the bank - which could, in theory, now "destroy" this money and try to create price deflation, but why should it? It would be self-immolation - unlikely behavior for a bank.And since property seized by banks instead of a loan does not cease to exist, I don't see why we should expect sudden hyperinflation. Theoretically, ill-tempered bankers could try to "hide" seized property and thereby attempt to manipulate the ratio of money to purchasable goods, but this, again, would be self-immolation because it would totally drown the bank's balance sheets - which would neither show a monetary value to be given out as loans nor property sellable for monetary value. In other words, I don't see why the bank wouldn't bankrupt itself in the process. Bad idea, perhaps.
american.swan: Please note: I'm scared out of my skin right now over this.
Please note: I'm scared out of my skin right now over this.
Unfortunately [ or fortunately-depending on your point of view] , for a variety of reasons, nobody can reliably , consistently predict future economic events- regardless of the economic school adhered to [eg Austrian, Classical, Keynesian, etc etc.].
A realistic long term savings plan must be able to equally and simultaneously protect ones savings against all common historically occurring economic events that may be experienced over the course of ones own life - e.g inflation, hyper -inflation, recession, deflation, "tight" money, and yet still be able to sufficiently profit if prosperity [ i.e. "good times"] once again comes around.
The usual psychological signs of an unbalanced approach to long term savings that does not sufficiently protect the saver against any or all of those possibilities is extreme nervousness about the financial and economic future. This is understandable.
However, to reach the state of extreme nervousness you are experiencing it was first of all necessary for you [or anyone else] to accept the premises and conclusions of the article you linked to.
However there is no guarantee that the predicted events will occur in your lifetime, they might, but they might not.
In order to survive and grow, [and for you to not become a "basket case" in the process], your long term savings must at all times be capable of instantaneous [i.e no buying/selling required] ,equal [i.e no bias towards any one scenario] protection against the possibility of the reoccurrence of any/all previously historically occurring economic scenarios briefly outlined above, including of course [but not limited to] a deflationary depression[ which is what I assume the article is predicting as being "inevitable"].
Hello From a "Post- Austrian",Anarcho-Capitalist ,Taoist, 911 "No- Planer" :
Sphairon: Anyhow. If a bank calls in a loan ("force the wealth created with credit to return to the bank")
Anyhow. If a bank calls in a loan ("force the wealth created with credit to return to the bank")
I didn't say or hear that. I said "buy". The bankers will buy assets through "holding companies" or cohorts of theirs because they'll have cash, no one else will have any. The people living in US tent cities today are broke. That's why they are there. If they had any money or job they wouldn't be in the tents.
Wealth is being destroyed. Investments wiped out. Jobs lost. When unemployment is 50% or more, who has money? The people don't have money, the bankers or some say banksters have cash. And as the spiel goes, they will buy up whatever they want. Maybe they want google or microsoft or cisco or IBM or FORD or whatever they want, they'll be able to buy cheap, because money is hard to find, because no one has any. The government is trying to put money into the system to balance the lost wealth, but it isn't working. People are still losing jobs.
Before hyperinflation sets in, the story goes, huge price deflation, cause no one has any money. No one has any jobs, no one has any money, savings wiped out, food is hard to find.
Many nations have gone through hyperinflation. Just before hyperinflation, what happened? The spiel I'm hearing says this is what the banks have done time and time again to take control of stuff they want.
Maybe this time will be different, maybe the story is all wrong and will go into hyperinflation in a hurry.
The Fed increased the money supply by 120%. When the banks start lending that money, we could see hyperinflation if interest rates aren't raised (to a very high rate) to suck the money back in.
And if the world starts to dump dollars, we'll probably see hyperinflation.
Dollar Rally Predicted http://bit.ly/2nbh3U with terrible results. SANE or INSANE thought? Why does this make sense? Why does Jim Rogers agree?
american.swan: Dollar Rally Predicted http://bit.ly/2nbh3U with terrible results. SANE or INSANE thought? Why does this make sense? Why does Jim Rogers agree?
Link doesn't work for me...
Link STILL works for me.
This may be helpful:
Is there currently Inflation or Deflation?
"Currently there is a heated discussion on where prices are heading to. For Europe at least we can see that massive deflation now is about to hit the streets as unemployment has been avoided in the past and purchasing power had been artificially maintained. The coming break down in employment levels will cause Europeans to experience more deflation.
In the US the situation is slightly different. While asset prices (houses, etc.) are still in decline, there will be a predictable pick-up in overall price levels amid the Dollar collapse. The reasoning is simple:
Inflation is about to take the leading role for the US consumers, very soon. Imported items will increase in price, due to the Dollar depreciation. Just keep in mind that Oil is not only used for energy, but also for fertilizers, all chemical goods and especially plastics. Most of these products are produced abroad. What remains produced in the US is 70 percent services and only 30 percent has been goods. (that was before GM went down)
The arguments of the deflationist however are not incorrect. The reason why Hyperinflation does never come from one day to the other is that the production base (supply) has to be destroyed first! The slow pick up in overall price levels, which many people associate with Inflation is therefore only moderate at this moment of time. It is the consequence of increasing price levels during a phase of ongoing supply destruction. Only then, when supply destruction finally brings supply to levels below demand, we will see hyperinflation to start. of course only, if the central bank does not take an extremely aggressive rate hike policy stand. That however is pretty unlikely in times of bank failures..."
"For a wounded man shall say to his assailant: 'If I live I will kill you. If I die, you are forgiven.' Such is the rule of honor."
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